Tamny’s article weighs in with simple explanations of why trade deficits don’t matter. Rather, they are at minimum a meaningless abstract, and perhaps even a good thing. Key points,
- Fundamentally, countries do not trade, people do. And as individuals, trade balances by definition.
- We run deficits and surpluses every day in our relationships with companies, large and small. We run trade surpluses with our employer, and trade deficits with the local dry cleaner and Safeway.
- Foreign investment into domestic companies don’t count as part of the trade balance statistics. Thus, US investment in Chinese companies (Capital Surplus) don’t show up in the balance figures, only the imports of Chinese goods, contributing to a US “trade deficit.”
- “Just as American human capital became too valuable to waste on factory jobs, the same is now occuring in China.”
Along with two previous articles by Donald Boudreaux (Deficit I, Deficit II) good primers on the meaningless nature of balance of trade figures. The problem is these figures are used by pols to manipulate the citizenry with a form of economic jingoism.